Iceland, Cyprus... And These Two Countries?

Overnight, Reuters published an article highlighting something we noted first over three years ago: the unreasonably large size of a local financial sector as represented by its total assets compared to the host nation's GDP.

Specifically, Reuters alleges that "Cyprus' troubles stem from its exposure to Greece and the huge losses its two largest banks, Bank of Cyprus and Marfin Popular, had to stomach when euro zone leaders agreed in late 2011 to write down the value of private-sector holdings of Greek government bonds. In total, Cyprus requires 17 billion euros, nearly equivalent to its economy's annual output, to rescue its banks and deal with the government's own bills. Relatively small in the context of the Greek and Irish EU-IMF bailouts, at 240 billion euros and 67.5 billion euros apiece, for an island of just 1 million people it is a huge burden and speaks volumes about how large and unwieldy its banking sector had become."

More importantly, Reuters points out the similarities between Cyprus and Iceland in one key metric: total financial assets to the underlying GDP: "The [Cyprus] banking sector is now roughly eight times the size of the economy compared to 10 times for Iceland and over four times for Ireland before their crises. Banks in both countries used cheap funding to gorge on speculative investments." The issue for Cyprus of course was the composition of the liabilities matching these assets, which were mostly in deposit form, which was the alleged reason why the Eurogroup decided to proceed with deposit haircuts in order to shrink the overall financial balance sheet: arguably there were no other liabilities it could haircut. And yes, Cyprus is very comparable to Iceland in that regard. That much is known.

What may not be known is that it is specifically the fact that the underlying economy was tiny by comparison, i.e., small, relatively inert, non-aggressive government, in both Iceland and Cyprus that made them a depositor's safe haven... until of course confiscation day.

What is certainly not known, at least for now, is that slowly but surely financial markets and more importantly depositors, will start looking at all countries that have a very high ratio of financial assets, and thus deposits, to host GDP, as an indicator of where the "Cyprus Virus" may strike next.

Which is why we present readers with a pop quiz: the chart below show the ratio of total financial assets to host nation GDP. The tragic cases of Cyprus and Iceland are well-known, as per Reuters, and highlighted on the chart. We urge readers to guess what the supposedly very stable countries X and Y are on the chart, whose total financial system assets to GDP are approaching those of Cyprus, especially since depositors in their banking systems may be due for a very unpleasant surprise next if indeed Iceland and now Cyprus are the case studies.

Hint: Russian billionaire oligarchs are quite familiar with both X and Y.

We will provide the answer shortly after Bernanke's press conference today in which he will once again reaffirm he will monetize US debt as long as the US runs a $1+ trillion budget deficit, i.e., forever.

well, one must be the US, since Tyler is withholding releasing the answer to after Bernanke's presentation presumably in order to knock Bernanke's hypocrisy... as to the other, I'll guess it is the the US' little buddy, Canada....

You are a scream! As you may or may not know, 30% of the population does not have a sense of humor. These people find their way into bureaucratic jobs and spend most of their free time shopping for laxatives and alcohol.

Since biz news has become almost irrelevant, I find myself wandering the streets of ZH for puddles of humor… some of the guys (gals) here are great! I guess the prodigious almighty Tyler leads the bunch with his own brand of dark and sarcastically sanguine style…

@FukiSam ... Hm. 55 ups and no downs. I didn't down you because I understand the point you are trying to make, but I disagree. Your attitude is unnecessarily nihilistic.

There is a rose bush growing on a wall of a monastary in France that is thought to be 1000 years old. The rose is still there as is the monastary.

Sure, it may be a nuisance, but the fact is that one can remove all the weeds (every. single. one.) from one's row of carrots, if one is determined to do so. Yeah, you may have to do it all over again in another month or two, and certainly again next year, but ...

it. can. be. done.

Entropy is simply a natural force that can, in most necessary and reasonable circumstances, be overcome.

It is said that water is an architect's worse enemy.

And yet, here I sit. Dry and warm under a roof that is over one hundred and ten years old. (And by the looks of it, it might last as long as that rose on the monastary in France.)

All the poor savers should have been investing in stawks instead, in particular the Wall Street related ones, they are proven to be much safer and give much higher returns... look at how the DJIA index just has upward direction!!

You know what I've noticed? Nobody panics when things go "According To Plan." Even if the plan is horrifying! If, tomorrow, I tell the press that, like, a gang banger will get shot, or a truckload of soldiers will be blown up, nobody panics, because it's all "part of the plan". But when I say that one little old mayor will die, well then everyone loses their minds! Introduce a little anarchy. Upset the established order, and everything becomes chaos. I'm an agent of chaos. Oh, and you know the thing about chaos? It's fair!

Kind of begs the question as to why the Russians don't invest in their own country and instead trust the money to untrustworthy banks that will just piss away the money on the next thing that Thomas Stolper recommends.

As long as we're doing quizzes n all(whilst waiting for the next shoe to drop o'er East!)....

there's a couple of 'regular contributors\street solicitors' here on the Hedge today whose attempts to capitalize on the Cyrus imbrogolio are pretty pathetically transparent...and sure indication of just how much their reach exceeds their grasp of the relevant topics of interest to the readership.

Their histrionic choice of headline(s) tells it all...and displays a very suspect 'best before' date for both individuals.

Your condescending opinions are greatly appreciated. I'm sure you're smarter than me and just about everybody here on ZeroHedge. I'm a Trader and YES, capitalizing on opportunities is ingrained in my DNA. So, I'm sorry if I offended you in any way, shape, or form, but from your response, you clearly look like a Follower and not a Leader. So Keep Following, because if it weren't for muppets like you, the Goldmans' and Stanleys' of the world would've been bankrupt long ago.

P.S: I've been a loyal ZeroHedger longer than your underdeveloped mind can fathom.

I can fathom that you've been around here for quite some time, but dust builds up in corners and what of it?

I have no idea what you're on about, as I have not directed any barb your way, and having read your rather lame diatribe against an imagined provocation, very much doubt I would take the time to bother doing so, no matter the circumstance. Please lead yourself to a quiet corner and try to calm yourself down.

At least I'm trying to contribute something in my own small way; I get it if you don't like my style or method. But thats the beauty of Free Will. No ones asking you to click on the links me or any other ZeroHedgers post, let alone spend your brain cells (whatever's left of them) on composing sophisticated and well researched (on Dictionary.com) Shakespearian responses, while in the process exposing your own insecurities to the world to laugh at.

"It has been said that something as small as the flutter of a butterfly's wing can ultimately cause a typhoon halfway around the world."

Maybe it's been a bad day on the 'trading floor'? I have no idea what's bit you, or why you imagined I had any interest in 'your posts' let alone urge to comment upon one, but in all sincerity I urge you to stop embarrassing yourself further here...whoever you are. Perhaps a hobby would help?

Well, at least some of us do actually TRADE; unlike divorced college professors moonlighting as Traders. You remind me of John Nash from A Beautiful Mind; you've probably created an imaginary life for yourself in which you pretend to be a Trader, trading Monopoly Money. Good for you.

People with self-esteem issues who are an embarassment themselves, tend to perceive others in the same vein.

My new hobby is butchering Muppets. Anyone interested in signing up? First 14 days are FREE.

That coming from an ass clown named Tsukato? You seem like the kind of guy who'd suck a bag of dicks for a dollar. How much does a bowl of rice cost in Japan, given the current exchange rate of USD/JPY at 95.50.

Russian billionaires tend to avoid the USA and UK for fear of being recognized from their days working for the KGB. What is the statute of limitations for espionage?

Spain?

Spanish police arrested four people Friday suspected of laundering large sums of money from Russian criminal gangs as part of a network they said may be linked to Semion Mogilevich, one of the FBI's ten most wanted fugitives.

There is nothing complicated about the charges against the defendants. According to the indictment, Alexander A. opened several accounts with Berliner Bank and a branch of Commerzbank in the southern Germany city of Esslingen, as part of a plan to invest Mafia millions in Germany, and established a Germany company, S+L Iba GmbH, to manage the funds. Alexander L., 59, a former Russian investigating magistrate, was made managing director of the company. An old friend from Moscow, Oleg R., 47, was given the job of handling transactions.

"US banking system while large is offset by an equally large GDP." You are correct. And a large portion of the GDP is generated by.....Banking!!!! It's like a perpetual motion machine...only it spits out money!!! Nirvana has been realized.

Austria and Switzerland is the answer. The UK has has a larger proportion but it is a G8 government and therefore the British pound is a reserve currency. That means the UK, as the USA can print all needed bank bail-out money.

The UK has to be one, Farage was very keen on telling the cypriots to keep their enormous banking system going. As much as I like Farage , he knows that the only industry britain has is there financial sector and they will protect it to the death.

I took Farage's comments to mean that since "Cyprus is a bank with a country attached" (I would attribute that but can't remember), the countryfolk may want to consider saving their only industry. Not to protect the industry to the death but to save their own lives while they rationally get onto more productive industries and a reality-based financial sector.

The FIRE (Financial, Insurance and Real Estate) sector is too large. These are the rent seekers, or vampire squid if you prefer, that add costs where none existed before their existence. These are the unproductive, moneyed interests that suck the productive wealth from the rest of society.

Tyler..personal question...how do you keep this up? For years you've been this paul revere and for years these bastards defy every truth, every logic, every fact...how do you keep going? My head wants to explode.

The Russian Bear is not going to take this haircut without a fight! They will just recoup the loss over a few years through their prices on natural gas and it will be Germany that eventually pay the loss through its natural gas.

The German should of known better than to cut a deal with the Russians on nat gas. I guess the Germans think that the Russian have forgot about WW2.

Why should we think the financial dimension of Cypriot institutions within political borders?? What matters is not the country but the currency zone (i.e. euro zone) because the risk is not national. The guarantee on deposits was never provided by the government of Cyprus, but by the ECB. Therefore, it is stupid to think that Cyprus is facing a run on banks. Its the Euro zone that is facing the run!